East Bergholt Parish Council

Reserves Policy

1. Introduction

1.1 East Bergholt Parish Council is required to maintain adequate financial reserves
to meet the needs of the organisation. The purpose of this policy is to set out how
the Council will determine and review the level of reserves.

1.2 Sections 32 and 43 of the Local Government Finance Act 1992 require local
authorities to have regard to the level of reserves needed for meeting estimated
future expenditure when calculating the budget requirement.

1.3 Reserves can be categorised as general, earmarked or restricted.
1.4 Proper Practices to be applied to Annual Governance and Accountability Returns
require all authorities to have regard to the need to put in place a General Reserve
Policy and have reviewed the level and purpose of all Earmarked Reserves.

1.5 Furthermore, it is stated that whilst authorities should have sufficient Reserves
(General and Earmarked) to finance both its day-to-day operations and future plans,
it is important, however, given that its funds are generated from taxation/public
levies, that such reserves are not excessive.

1.6 Restricted Reserves are ring-fenced for a particular purpose and may not be
transferred to another reserves category.

2. Types of reserves

General Reserves

2.1 General reserves are funds which do not have any restrictions as to their use.
These reserves can be used to smooth the impact of uneven cash flows, offset the
budget requirement if necessary or can be held in case of unexpected events or
emergencies.

2.2 The level of general reserves is a matter of judgment. and so this policy does not
attempt to prescribe a blanket level. The primary means of building general reserves
will be through an allocation from the annual budget. This will be in addition to any
amounts needed to replenish reserves that have been consumed in the previous
year. Underspent budgets will be added into reserves at the year end.

2.3 Setting the level of general reserves is one of several related decisions in the
formulation of the medium-term financial strategy and the annual budget. The
Council must build and maintain sufficient working balances to cover the key risks it
faces, as expressed in its financial risk assessment.

2.4 If in extreme circumstances general reserves were exhausted due to major
unforeseen spending pressures within a particular financial year, the Council would
be able to draw down from its earmarked reserves to provide short-term resources.

2.5 Even at times when extreme pressure is put on the council’s finances the council
must keep a minimum balance sufficient to pay one month’s worth of contractual
obligations to staff and contractors in general reserves at all times.

2.6 Proper Practices to be applied to Annual Governance and Accountability Returns
provide that the generally accepted recommendation with regard to the appropriate
minimum level of a Smaller Authority’s General Reserve is that this should be
maintained at between three and twelve months. The reason for the wide range is to
cater for the large variation in sizes of individual authorities.

2.7 2.7 In practice, any authority with a net revenue expenditure in excess of
£200,000 should plan on three months equivalent General Reserve. In all of
this it is important that each authority adopt, as a General Reserve policy, the
level appropriate to their size and situation and plan their Budget so as to
ensure that the adopted level is maintained. Changes in activity levels/range
of services provided will inevitably lead to changes in the requisite minimum
level of General Reserve in order to provide working capital for those
activities.

2.8 In order to fulfil its financial obligations and to be able to accommodate the
unforeseen, the Council will retain general reserves equivalent to 50% of the
precept at all times.

2.9 General reserves making up the remaining 50% equivalent of the precept
may be earmarked for nominated Council Projects and other infrastructure
funding which benefit the community.

2.10 The level of reserves and the purposes for which they are held is reported to
Council on a monthly basis. The Council may instigate a full review of
reserves to be conducted by the Strategy, Policy and Finance Committee
which will report to Council with recommendations.

Earmarked Reserves

3.1 Earmarked reserves can be used to cover items such as:

• Renewals – to enable services to plan and finance an effective programme of
vehicle and equipment replacement and planned property maintenance.
These reserves are a mechanism to smooth expenditure so that a sensible
replacement programme can be achieved without the need to vary budgets.

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• Carry forward of underspend – some services commit expenditure to projects
but cannot spend the budget in year. Reserves are used as a mechanism to
carry forward these resources.

• Funding for major Council Projects which cannot be accommodated in the
revenue budget. The current Council Project Priority schedule is appended to
this policy and will be updated following each review.

• Other earmarked reserves may be set up from time to time to meet known or
predicted liabilities and may include an insurance reserve to enable the
Council to meet the excesses of claims not covered by insurance.

3.2 Earmarked reserves will be established on a “needs” basis, in line with
anticipated requirements. Any decision to set up a reserve must be given by the
Council. Expenditure from reserves can only be authorised by the Council.

3.3 Reserves should not be held to fund ongoing expenditure. This would be
unsustainable as, at some point, the reserves would be exhausted. To the extent that
reserves are used to meet short term funding gaps, they must be replenished in the
following year. However, earmarked reserves that have been used to meet a specific
liability would not need to be replenished, having served the purpose for which they
were originally established.

3.4 All earmarked reserves are recorded by the Responsible Financial Officer who
lists the various earmarked reserves and the purpose for which they are held and
reports to Council.

3.5 Reviewing the Council’s Financial Risk Assessment is part of the budgeting and
year end accounting procedures and identifies planned and unplanned expenditure
items and thereby indicates an appropriate level of Reserves.

Restricted Reserves

4.1 The Council holds Community Infrastructure Levy (CIL) funds as Restricted
Reserves available only for awards pursuant to the Council’s CIL Policy and
Procedure.

4.2 Neighbourhood CIL is passed to parish or town councils by Babergh District
Council when development is taking place. The amount will be 15% or 25% of the
total CIL payment depending on whether the community has an adopted
Neighbourhood Plan. In East Bergholt the amount is 25%.

4.3 The CIL Regulations 2010 as amended state that the parish council must spend
the CIL income they received from the District on either:

• The provision, improvement, replacement, operation or maintenance of
infrastructure; or

• Anything else that is concerned with addressing the demands that
development places on an area.

4.4 Providing CIL is spent in accordance with the above, CIL monies may be used to
provide seed or match funding with other income streams and / or may be spent
collaboratively with other parish councils, community interest companies or other
providers to make the most efficient use of funding to benefit the community.

4.5 East Bergholt Parish Council has a five-year period in which to spend CIL monies
from the date received, thus funds may be accumulated to provide for major projects.

4.6 These sums must be held in a designated reserve (restricted reserve) to support
the expenditure on facilities and services to ensure that there is the capacity to
sustain such growth. Over time this will lead to a reduction in the total reserve
available and all associated revenue costs will need to be brought into the revenue
budgets funded by the Precept.

5. The Use of Reserves

5.1 The Council will hold Reserves for these four main purposes: –

• A working balance to help cushion the impact of uneven cash flows and avoid
unnecessary temporary borrowing – this forms part of the General Reserves.

• A contingency to cushion the impact of unexpected events or emergencies –
this also forms part of the General Reserves.

• A means of building up funds to meet known or predicted requirements –
Earmarked Reserves

• A means of using funds to address the demands that development has placed
on the area – Restricted Reserves.

6. Council Procedures for managing Reserves

6.1 Any decision to set up a reserve must be made by the Council.

6.2. Expenditure from reserves can only be authorized by the Council.

6.3. The reserves will be reviewed by the Council as part of the annual budgeting
process.

6.4. The Responsible Financial Officer will maintain details of all reserves which will
be reported to Council at regular intervals.

Approved and adopted by East Bergholt Parish Council: 8 February 2024
Next Review: February 2025